 Credit & Risk Analyst (S.O. Post) in a Public Sector Bank.

 7 years Banking experience.

 Selected as SBI PO and also cracked IBPS PO.
 Appeared in UPSC Civil Services Mains (2017).
Academics:
 Chartered Financial Analyst (C.F.A.)
 Masters in Commerce (Accounting & Business Statistics).
 Diploma in Treasury, Investment & Risk Management.
 JAIIB & CAIIB.

Follow me on Unacademy:
https: //unacademy.com/user/Zinni
 Balance of Payments
• The balance of payments is the record of all international financial transactions
made by a country's residents.

• A country's balance of payments tells you whether it saves enough to pay for
its imports. The BOP is reported for a quarter or a year.
Current Account:
• Current account refers to an account which records all the
transactions relating to export and import of goods and services and
unilateral transfers during a given period of time.
• Current account contains the receipts and payments relating to all
the transactions of visible items, invisible items and unilateral
transfers.
Components of Current Account:

The main components of Current Account are:

1. Export and Import of Goods (Merchandise Transactions or Visible

Trade):
A major part of transactions in foreign trade is in the form of export and import of
goods (visible items). Payment for import of goods is written on the negative side
(debit items) and receipt from exports is shown on the positive side (credit
items). Balance of these visible exports and imports is known as balance of trade
(or trade balance).
2. Export and Import of Services (Invisible Trade):
It includes a large variety of non- factor services (known as invisible items)
sold and purchased by the residents of a country, to and from the rest of the
world. Payments are either received or made to the other countries for use of
these services.
Services are generally of three kinds:
(a) Shipping,
(b) Banking, and
(c) Insurance.
Payments for these services are recorded on the negative side and receipts
on the positive side.
3. Unilateral or Unrequited Transfers to and from abroad (One
sided Transactions):

Unilateral transfers include gifts, donations, personal remittances

and other ‘one-way’ transactions. These refer to those receipts and
payments, which take place without any service in return. Receipt of
unilateral transfers from rest of the world is shown on the credit side
and unilateral transfers to rest of the world on the debit side.
4. Income receipts and payments to and from abroad:
It includes investment income in the form of interest, rent and profits.

Current Account shows the Net Income:

Current Account records all the actual transactions of goods and

services which affect the income, output and employment of a country.
So, it shows the net income generated in the foreign sector.
Capital Account:
Capital account of BOP records all those transactions, between the
residents of a country and the rest of the world, which cause a change
in the assets or liabilities of the residents of the country or its
government. It is related to claims and liabilities of financial nature.

Capital Account is used to:

(i) Finance deficit in current account; or
(ii) Absorb surplus of current account.
Capital account is concerned with financial transfers. So, it does not
have direct effect on income, output and employment of the country.
Components of Capital Account:

The main components of capital account are:

1. Borrowing and lending to and from abroad: It includes:

• All transactions relating to borrowings from abroad by private sector,
government, etc. Receipts of such loans and repayment of loans by foreigners
are recorded on the positive (credit) side.

• All transactions of lending to abroad by private sector and government.

Lending abroad and repayment of loans to abroad is recorded as negative or
debit item.
2. Investments to and from abroad: It includes:

• Investments by rest of the world in shares of Indian companies, real

estate in India, etc. Such investments from abroad are recorded on
the positive (credit) side as they bring in foreign exchange.
• Investments by Indian residents in shares of foreign companies, real
estate abroad, etc. Such investments to abroad be recorded on the
negative (debit) side as they lead to outflow of foreign exchange.
3. Change in Foreign Exchange Reserves:
The foreign exchange reserves are the financial assets of the
government held in the central bank. A change in reserves serves as the
financing item in India’s BOP.
So, any withdrawal from the reserves is recorded on the positive (credit)
side and any addition to these reserves is recorded on the negative
(debit) side.